Buying a house isn’t cheap. You’ve got mortgage fees, real estate fees, closing costs, utility bills, and taxes – and that’s just the start.
Along with a new house come a host of new costs, from furniture and carpet to dishwashers and lawnmowers – an average of $5,235 for furniture and gardening purchases, according to the National Association of Realtors.
Slow down before hitting the stores
But going on a shopping spree for wallpaper, bathtubs and ceiling fans before you get the keys and deed could crash your mortgage and cancel your closing.
That’s because your potential mortgage lender will pull a final copy of your credit report right before your closing. And if thousands of dollars suddenly have been added to credit-card balances or new lines of credit have been opened, the activity could ding your credit score, prompting the lender to rewrite your mortgage at the last minute and wrecking any perfectly timed moving plans.
Before you close on a home, you’ll receive two important documents: a form called the Loan Estimate and one that spells out all your final loan costs called the Closing Disclosure. These forms are much like the nutrition information on the side of any food you buy at the grocery store and were implemented after the housing crash to protect homebuyers.
What these forms are for
The loan estimate allows you to make a straight-up comparison between mortgage offers you get, while the closing disclosure presents a direct side-by-side check before you sign the loan to highlight any costs that might have changed between the estimate and the closing.
To make sure buyers have time to check, understand and challenge any changes, there’s a mandatory three-day waiting period between when the borrower receives the closing disclosure and the actual closing date.
That means any changes you or the lender make after that will generate a new disclosure and another three-day waiting period, which will delay your closing and your moving plans.
If a pre-closing buying binge has lowered your credit score the lender could raise your interest rate. And that will prompt a whole new round of disclosure statements and the accompanying waiting period for you.
A new system: better but not great
These post-recession closing reforms are a huge improvement over the old process. Buyers often didn’t see their final costs until the day before the closing or even at the closing itself. That made it difficult or impossible to catch mistakes or confront a lender about a significant discrepancy between what was originally offered and the final costs.
It wasn’t unusual for buyers to have to race to the bank, rustle up cash, and run back with a second cashier’s check to cover an unexpected increase in closing costs. And loan terms often didn’t line up with what borrowers were promised by mortgage brokers, as we saw during the real estate meltdown that prompted the Great Recession.
But the new closing rules also mean that buyers need to sit tight between the time when their loan is approved and the closing. Between the day you get your loan approval and until after your closing, buyers need to sit on their wallets, pay all their bills on time and avoid taking out any new lines of credit or even making new credit inquiries. That’ll leave your credit untouched until after you’ve moved in.
Then, once you’ve closed, it’s safe to buy that fancy new welcome mat.
Brian J. O’Connor is the author of the award-winning budgeting book, “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”
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